The ongoing shift towards digital payment methods in Tanzania, with significant growth in electronic transactions and a decline in traditional cheque usage. The increased adoption of systems like TISS, EFT, and TIPS underscores the country's move towards a more digital and inclusive financial ecosystem.

Overview of Payment System Performance:

1. Tanzania Interbank Settlement System (TISS):
   • TZS Transactions: In 2023, transactions processed through TISS in local currency increased significantly. The volume rose by 7.28% to 4.11 million transactions, while the value surged by 23.39% to TZS 256,028 billion.
   • USD Transactions: The volume of transactions in USD also saw a substantial rise of 31.13%, with 545,161 transactions processed. However, the value of these transactions increased by 9.09%, amounting to USD 27,501.77 million.
2. Electronic Fund Transfers (EFT):
   • EFTs grew by 13% in volume, reaching 19.10 million transactions.
   • The value of these transactions rose by 19% to TZS 14,422.41 billion.
3. Cheque Transactions:
   • There was a decline in cheque usage, with the volume of local cheques dropping by 11% to 485,972 transactions. The value also decreased by 4% to TZS 1,893.47 billion.
   • USD-denominated cheque transactions similarly declined, with an 18% decrease in volume to 88,041 transactions and a 19% reduction in value to USD 192.41 million.
4. Tanzania Instant Payment System (TIPS):
   • TIPS facilitated 235.04 million transactions, valued at TZS 12,270.47 billion.
   • The number of financial service providers registered on TIPS increased from 34 in 2022 to 45 in 2023.
5. Merchant Payments:
   • There was a significant increase in merchant payments. The number of registered merchants grew by 68% to 657,346.
   • Transaction volumes increased by 80.98% to 301.21 million, and the value of these transactions rose by 48.04% to TZS 17,918.12 billion. The growth was supported by regulatory changes, including the elimination of transaction levies on merchant payments.
6. Cross-Border Fund Transfers:
   • Fund transfers via SWIFT decreased, with a 53.03% drop in volume and a 44.73% decrease in value.
   • In contrast, transfers facilitated by Electronic Money Issuers (EMIs) to the EAC and SADC regions saw significant growth. Inflow volumes increased by 42.17%, with a 68.03% rise in value. Outflow volumes grew by 61.58%, and the value surged by 78.92%.
7. Remittances:
   • Remittances via mobile phones declined, with a 10.50% drop in volume and a 6.39% decrease in value. Total inflow transactions were 3.6 million, valued at TZS 980.46 billion.
   • However, incoming remittances to bank accounts saw substantial growth, with a 67.66% increase.

Tanzania's payment system reflects a broader narrative of economic modernization

Tanzania's payment system reflects a broader narrative of economic modernization, improved financial inclusion, and growing integration into regional and global economies. These developments are pivotal for sustaining and accelerating Tanzania's economic growth and development.

1. Digital Transformation and Financial Inclusion:
   • The significant growth in electronic fund transfers (EFT), the Tanzania Instant Payment System (TIPS), and mobile money transactions highlights the rapid digitalization of Tanzania's economy. The increase in the volume and value of these transactions suggests a growing acceptance of digital payment methods, which is a critical driver of financial inclusion. This trend indicates that more Tanzanians are participating in the formal economy, which is essential for sustainable economic development.
2. Reduction in Cash Dependency:
   • The decline in cheque transactions and the simultaneous rise in electronic payments reflect a shift away from cash-based transactions towards a more formalized and traceable financial system. This reduction in cash dependency can lead to improved tax collection, better financial management, and a decrease in the informal economy, all of which contribute positively to economic development.
3. Efficiency in Financial Transactions:
   • The growth in transactions processed through the Tanzania Interbank Settlement System (TISS) in both Tanzanian Shillings (TZS) and USD demonstrates improved efficiency in the country's financial infrastructure. Efficient and secure payment systems are vital for economic stability, facilitating smoother business operations, both domestically and internationally. This efficiency also helps attract foreign investment, as investors seek stable and reliable financial systems.
4. Expansion of Merchant Payment Systems:
   • The significant increase in merchant payments, with more businesses adopting digital payment systems, indicates the expansion of the formal retail sector. This growth suggests that more small and medium-sized enterprises (SMEs) are integrating into the formal economy, which is crucial for job creation and economic diversification. The removal of transaction levies on merchant payments further stimulates this growth by making digital payments more attractive to businesses and consumers alike.
5. Cross-Border Economic Integration:
   • The rise in cross-border fund transfers within the East African Community (EAC) and Southern African Development Community (SADC) regions reflects Tanzania's increasing integration into regional economies. This integration is vital for trade, investment, and economic cooperation, fostering regional economic growth and development. The growth in cross-border transactions facilitated by Electronic Money Issuers (EMIs) underscores Tanzania's active participation in regional economic activities, which can enhance the country's trade balance and economic resilience.
6. Investment in Financial Infrastructure:
   • The development and adoption of new payment systems like TIPS, and the increased number of financial service providers, show a commitment to investing in financial infrastructure. This investment is crucial for supporting the country's economic growth by providing the necessary tools for a modern, digital economy. A robust payment infrastructure also enables the government and private sector to implement more efficient financial policies and strategies, which can drive further economic development.

Implications for Tanzania’s Economic Development

• Economic Growth: The increase in digital payments and the overall modernization of the payment system contribute to higher economic productivity and growth. By facilitating quicker, more secure, and more efficient transactions, these systems help businesses operate more smoothly and efficiently, which is crucial for economic growth.
• Job Creation and SME Growth: The expansion of digital payment systems, especially among merchants, supports the growth of SMEs, which are critical for job creation in Tanzania. As more businesses enter the formal economy, they can access financing, expand operations, and hire more employees.
• Increased Tax Revenue: With more transactions moving into the formal financial system, the government can better track economic activity, leading to improved tax collection. This increased revenue can be reinvested into public services, infrastructure, and other development projects.
• Financial Inclusion: As digital payments become more widespread, financial services become more accessible to the unbanked and underbanked populations, driving financial inclusion and reducing poverty.
• Resilience to Economic Shocks: A diversified and modern payment system makes the economy more resilient to shocks, such as those caused by pandemics or financial crises. Digital systems can continue to operate under various circumstances, ensuring economic continuity.